FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[Flynnstone5]

Sean Duffy (R-Wis.) will chair the housing and insurance subcommittee, which will now include oversight of Fannie Mae and Freddie Mac

 

http://bankingjournal.aba.com/2017/01/hensarling-announces-house-subcommittee-chairmen/

 

https://votesmart.org/public-statement/1068872/where-the-big-short-fell-short#.WG-4_pJlD4U

[investorG]

Sean Duffy (R-Wis.) will chair the housing and insurance subcommittee, which will now include oversight of Fannie Mae and Freddie Mac

 

http://bankingjournal.aba.com/2017/01/hensarling-announces-house-subcommittee-chairmen/

 

 

not new news but it reinforces the importance of courts

[Guest cherzeca]

when I read other boards, articles, etc. that act as if this is a sure thing, it literally puts a pit in my stomach.

 

+1. boards are an echo chamber; people are wired to derive psychological comfort out of making bias confirming statements

 

we are still in highly speculative mode in terms of trying to understand what mnuchin/trump's intentions are.. some caution is in order

 

agree with caution statements.  sometimes, the less you know about something, the more convinced you are.  in this case, i must say that the more i read (briefs etc) the more convinced i am, but lamberth told me that i might be emphasizing the wrong thing, such as the rule of law.

 

i reread mnuchin's tv statement, and i want to ask this board whether you guys think this is an interesting tell.

 

whenever someone is generally antaganostic to GSEs, they talk about "reforming" the GSEs...that they should be wind down and replaced, or reformed to the core.

 

here is the convo:

 

“Maria: Would you move to have these privatized?

Mnuchin: Absolutely. We gotta get Fannie and Freddie out of government ownership. It makes no sense that these are owned by the government and have been controlled by the government for as long as they have. In many cases this displaces private lending in the mortgage markets and we need these entities that will be safe; so let me just be clear we’ll make sure that when they’re restructured they’re absolutely safe and they don’t get taken over again but we gotta get them out of government control.”

 

notice mnuchin used the word "restructured".  now when i think a finance guy uses the word restructured, he is talking about a finance fix, a fix to balance sheet, not a fix to the core of the enterprise that would involve reform.  financial restructuring falls far short of reform, in other words.

 

am i reading too much into this distinction? (ie confirmation bias).  frankly, i think it is telling what mnuchin's current mindset is...doesnt mean we can tell with any specificity what he and trump admin will do, but i don't think it was just a meaningless word choice.

[Fat Pitch]

when I read other boards, articles, etc. that act as if this is a sure thing, it literally puts a pit in my stomach.

 

+1. boards are an echo chamber; people are wired to derive psychological comfort out of making bias confirming statements

 

we are still in highly speculative mode in terms of trying to understand what mnuchin/trump's intentions are.. some caution is in order

 

agree with caution statements.  sometimes, the less you know about something, the more convinced you are.  in this case, i must say that the more i read (briefs etc) the more convinced i am, but lamberth told me that i might be emphasizing the wrong thing, such as the rule of law.

 

i reread mnuchin's tv statement, and i want to ask this board whether you guys think this is an interesting tell.

 

whenever someone is generally antaganostic to GSEs, they talk about "reforming" the GSEs...that they should be wind down and replaced, or reformed to the core.

 

here is the convo:

 

“Maria: Would you move to have these privatized?

Mnuchin: Absolutely. We gotta get Fannie and Freddie out of government ownership. It makes no sense that these are owned by the government and have been controlled by the government for as long as they have. In many cases this displaces private lending in the mortgage markets and we need these entities that will be safe; so let me just be clear we’ll make sure that when they’re restructured they’re absolutely safe and they don’t get taken over again but we gotta get them out of government control.”

 

notice mnuchin used the word "restructured".  now when i think a finance guy uses the word restructured, he is talking about a finance fix, a fix to balance sheet, not a fix to the core of the enterprise that would involve reform.

 

am i reading too much into this distinction? (ie confirmation bias).  frankly, i think it is telling what mnuchin's current mindset is...doesnt mean we can tell with any specificity what he and trump admin will do, but i don't think it was just a meaningless word choice.

 

Mnuchin got his marching orders from the top. He's looking to restructure the company and release them back into the wild. This of course will enrich his friends greatly which might hinder his progress.

[Mephistopheles]

I would urge a bit of caution. Recall that while Watt took his directions from Treasury during the current administration, there's nothing requiring him to do so in the next administration. If he is somehow forced out, however, then it's a different story.

 

Let's say Mel Watt does whatever he wants, doesn't listen to Treasury. When does his term expire? At that point, doesn't the President get to pick the next head of the FHFA?

 

Also, can't Treasury just refuse the dividends? Is there some backdoor way where they can drive the money back to shareholders? Just seems awkward to me if the receiving end of the party we are suing is in agreement with us, and yet the middleman can still screw us over.

[Guest cherzeca]

I would urge a bit of caution. Recall that while Watt took his directions from Treasury during the current administration, there's nothing requiring him to do so in the next administration. If he is somehow forced out, however, then it's a different story.

 

Let's say Mel Watt does whatever he wants, doesn't listen to Treasury. When does his term expire? At that point, doesn't the President get to pick the next head of the FHFA?

 

Also, can't Treasury just refuse the dividends? Is there some backdoor way where they can drive the money back to shareholders? Just seems awkward to me if the receiving end of the party we are suing is in agreement with us, and yet the middleman can still screw us over.

 

i think watt goes along to get along.  now, if/when the wind changes 180, we will see whether he has any principled conviction, but my sense is that he is political yes man waiting for instruction

[TonyG]

I agree (more from the echo chamber). "restructure" and "privatize "is definitely different that what we have been hearing for past 8 years where everything has been about "reform".

 

I think its a good thing he hasn't said anything else about the GSE's so as to not give people ammunition.

 

Also Watt has warned about lack of capital last year so I think he would be open

[hardincap]

@cherzeca, i think you're reading too much into it. "reform" isnt really in the vocabulary of finance professionals, i think he simply used that word by default or habit. we'll have to wait and see what he really has in mind. i think its worth noting though that according to tim howard, at a recent private meeting mnuchin stated that he hasn't given the gses much thought

[Flynnstone5]

when I read other boards, articles, etc. that act as if this is a sure thing, it literally puts a pit in my stomach.

 

+1. boards are an echo chamber; people are wired to derive psychological comfort out of making bias confirming statements

 

we are still in highly speculative mode in terms of trying to understand what mnuchin/trump's intentions are.. some caution is in order

 

agree with caution statements.  sometimes, the less you know about something, the more convinced you are.  in this case, i must say that the more i read (briefs etc) the more convinced i am, but lamberth told me that i might be emphasizing the wrong thing, such as the rule of law.

 

i reread mnuchin's tv statement, and i want to ask this board whether you guys think this is an interesting tell.

 

whenever someone is generally antaganostic to GSEs, they talk about "reforming" the GSEs...that they should be wind down and replaced, or reformed to the core.

 

here is the convo:

 

“Maria: Would you move to have these privatized?

Mnuchin: Absolutely. We gotta get Fannie and Freddie out of government ownership. It makes no sense that these are owned by the government and have been controlled by the government for as long as they have. In many cases this displaces private lending in the mortgage markets and we need these entities that will be safe; so let me just be clear we’ll make sure that when they’re restructured they’re absolutely safe and they don’t get taken over again but we gotta get them out of government control.”

 

notice mnuchin used the word "restructured".  now when i think a finance guy uses the word restructured, he is talking about a finance fix, a fix to balance sheet, not a fix to the core of the enterprise that would involve reform.  financial restructuring falls far short of reform, in other words.

 

am i reading too much into this distinction? (ie confirmation bias).  frankly, i think it is telling what mnuchin's current mindset is...doesnt mean we can tell with any specificity what he and trump admin will do, but i don't think it was just a meaningless word choice.

 

I posted the comment below on Tim Howard's blog in hopes that he might offer an opinion. I agree that when he says "when their restructured" , "out of government ownership" certainly doesn't imply wind down, but I question if it could somehow be agreeing with so many Republican opponents. The reassuring point that I always seem to come back to is that there doesn't seem to be a workable solution proposed by opponents; and the new admin. can't afford any solution that increases the cost of home ownership given the impact on the economy. Certainly tough as for every friend or member of the admin. who are pro FnF, there are two in major committee's who are clearly not.

 

I assume that you know Sean Duffy (R-Wis.) will chair the housing and insurance subcommittee, which will now include oversight of Fannie Mae and Freddie Mac. His op-ed from March 2016 clearly shows that he is not pro FnF. When I look at the members of the Senate Finance committee and the members of the Senate committee for Banking, Housing and Urban Affairs, it is striking how many members are anti FnF. When I couple this with the all of the other opposing forces, I have to really question the cause for optimism as a shareholder. What if Mnuchin’s comments regarding “out of government ownership/control” are actually agreeing with these forces? And if not, how is he and the Trump admin. going to convince these forces to support them? When a guy like Sean Duffy has had years to gain knowledge on the crisis and FnF, but still writes less than a year ago that they caused the crisis and taxpayers had to bail them out, it really makes me question how someone like him can be converted to supporting recap and release. Worse, what if Trump is convinced by FnF opponents that their line of thinking is correct? Nov 4, 2011 Trump Tweet: Malfeasance at Fannie Mae and Freddie Mac helped cause our current financial meltdown.

[Guest cherzeca]

@hard/flynn

 

i agree that i am putting alot of water into the restrucutred pail, maybe too much for it to carry.  but if i am going to restructure anything reasonably fast, i aint going to do a corker

[Mephistopheles]

I posted the comment below on Tim Howard's blog in hopes that he might offer an opinion. I agree that when he says "when their restructured" , "out of government ownership" certainly doesn't imply wind down, but I question if it could somehow be agreeing with so many Republican opponents. The reassuring point that I always seem to come back to is that there doesn't seem to be a workable solution proposed by opponents; and the new admin. can't afford any solution that increases the cost of home ownership given the impact on the economy. Certainly tough as for every friend or member of the admin. who are pro FnF, there are two in major committee's who are clearly not.

 

I assume that you know Sean Duffy (R-Wis.) will chair the housing and insurance subcommittee, which will now include oversight of Fannie Mae and Freddie Mac. His op-ed from March 2016 clearly shows that he is not pro FnF. When I look at the members of the Senate Finance committee and the members of the Senate committee for Banking, Housing and Urban Affairs, it is striking how many members are anti FnF. When I couple this with the all of the other opposing forces, I have to really question the cause for optimism as a shareholder. What if Mnuchin’s comments regarding “out of government ownership/control” are actually agreeing with these forces? And if not, how is he and the Trump admin. going to convince these forces to support them? When a guy like Sean Duffy has had years to gain knowledge on the crisis and FnF, but still writes less than a year ago that they caused the crisis and taxpayers had to bail them out, it really makes me question how someone like him can be converted to supporting recap and release. Worse, what if Trump is convinced by FnF opponents that their line of thinking is correct? Nov 4, 2011 Trump Tweet: Malfeasance at Fannie Mae and Freddie Mac helped cause our current financial meltdown.

 

I will say a couple of things. First, it's not up to Congress what happens. Yes I know, politics; but Trump especially doesn't give a shit about politics. He'll do what he thinks is right. So, what does he think is right? The answer is usually what is in his personal best interest and the best interest of his loyalists. That tweet doesn't concern me one bit, as its purpose was most definitely for political benefit for himself, at the time. The only principle I've seen Trump consistently display is support for those who support him. He's loyal to his loyalists, that's why people like Steve Bannon can make it into his administration, despite the ugly optics. That's why a Goldman guy gets nominated for Treasury Secretary. And given Paulson support, financially and vocally; he set up a fundraiser, I think it's highly likely that Trump favors Paulson over the anti-GSE senators.

[BTShine]

Meph-

Great points, and additionally he gets to say how crooked the last administration was in stealing from people (FNMA investors) and how his team looked at the internal documents "and they're BAD!!!  I'd show you them but we don't want embarrass Obama and Co. too much" 

[Flynnstone5]

@hard/flynn

 

i agree that i am putting alot of water into the restrucutred pail, maybe too much for it to carry.  but if i am going to restructure anything reasonably fast, i aint going to do a corker

 

Agree that Corker makes no sense nor does Crapo.

 

Meph - I too think your point on loyalty is a very valid one and has been clearly demonstrated so far with the exception of Giuliani, who I think may have had some prior business issues that posed a problem.

 

Side note - it's been a month now waiting on the writ decision....wtf!?

[investorG]

to those concerned about duffy:

 

this is not new news.  the odds of a pro-GSE leader of the subcommittee were v low.  it's a given that the House Rs are resistant to the GSEs.

 

a couple thoughts:

 

--duffy is young, ambitious, loves the media, and is likely from a pro-trump district.  in other words, trump would have a lot to offer him in return for any potential half-support.  the 'outs' for those previously on record against the GSEs potentially changing their minds are:  a) the new company would look far different than the old one in terms of capital / reserves / ROE  b) the value of govt warrants, if kept (duffy is a tea partier) and c) if the warrants are altered, there are other potential ways to pay the govt on an ongoing basis, like for a reinsurance commitment fee.

 

--as others have noted, Tsy / FHFA can in theory alter the NWS forward looking on their own. (according to lamberth they might be able to do whatever they want).  most traditional Democrats (those not in bed with the elites) support the GSEs, Trump could likely veto anything radical the House R's propose.  if the NWS goes away forward looking, it would become harder to shut down the GSEs.  perhaps though there is an argument of owning preferred over common.

 

--most importantly, the courts and 11000 documents are still out there as a key variable.  if the NWS is reversed and the senior preferred goes away, it's a whole new ball game.  and if the documents are allowable then public opinion could shift if they reveal sinister plans by the O administration.  in addition there's some small chance HERA is unconstitutional.  those who say the courts don't matter now are not thinking clearly imo.

 

all this said, there's real risk to this investment. but if there wasn't, the shares wouldn't have the upside potential that they have and we'd be off doing other things.

[Guest cherzeca]

thinking a bit about whether watt could be a sticking point, if treasury proposed an amendment that was unambiguously in the interests of the GSEs, in pursuing a recap and release from conservatorship, a conservator (ie fiduciary) would have no basis to object...and could be removed for cause if he did

[Flynnstone5]

FYI - Tim Howard's response to my earlier post:

 

Duffy’s taking the chairmanship of the Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises (under the House Committee on Financial Services, chaired by Jeb Hensarling) doesn’t change my views on the prospects for getting mortgage reform done administratively. The Republicans in positions of leadership in both the House and the Senate have long been solidly anti-Fannie and Freddie (and most of them pro-bank); the fact that a few of them change seats on occasion doesn’t have any real significance, and doesn’t change the overall alignment of forces.

 

As I tried to say in my piece, what’s new–and I think very positive–is that fact that Mnuchin wants to address the Fannie and Freddie issue “reasonably fast” (unlike Congress, which has been doing it “excruciatingly slowly”). To do that, he’ll have to settle the lawsuits against the net worth sweep, and when he starts to negotiate with the plaintiffs, he’ll learn the facts about Fannie and Freddie, and the causes of the financial crisis. Fortunately, Mnuchin (or Trump) doesn’t need to go through Congress to get Fannie and Freddie out of conservatorship; the Bush Treasury put them in without Congress. It’s a virtual certainty that leading Republicans in Congress–Hensarling, Duffy, Corker, Shelby et al–will object to “recap and release.” But THEIR problem is they don’t have an alternative. If they try a version of their fables about Fannie and Freddie causing the crisis and being a “flawed business model,” Mnuchin will have the facts to shoot that down. And it they tell him to try a bank-centric alternative, say the Urban Institute’s “Promising Road to GSE Reform,” based on fake risk-sharing securities, give me–or any other knowledgeable and objective housing finance professional–five minutes with Mnuchin, and he’ll say, “well, that won’t work; what else have you got?”

 

Again, as I said in response to an earlier question, getting reform done won’t be a layup. But once you introduce facts into the dialogue–which have been kept out of the Congressional debate for eight years, but an administrative process will let in–the “good guys” have much the better hand. We’ll have to see how they play it, but I like their chances.

 

[rros]

when I read other boards, articles, etc. that act as if this is a sure thing, it literally puts a pit in my stomach.

 

+1. boards are an echo chamber; people are wired to derive psychological comfort out of making bias confirming statements

 

we are still in highly speculative mode in terms of trying to understand what mnuchin/trump's intentions are.. some caution is in order

 

agree with caution statements.  sometimes, the less you know about something, the more convinced you are.  in this case, i must say that the more i read (briefs etc) the more convinced i am, but lamberth told me that i might be emphasizing the wrong thing, such as the rule of law.

 

i reread mnuchin's tv statement, and i want to ask this board whether you guys think this is an interesting tell.

 

whenever someone is generally antaganostic to GSEs, they talk about "reforming" the GSEs...that they should be wind down and replaced, or reformed to the core.

 

here is the convo:

 

“Maria: Would you move to have these privatized?

Mnuchin: Absolutely. We gotta get Fannie and Freddie out of government ownership. It makes no sense that these are owned by the government and have been controlled by the government for as long as they have. In many cases this displaces private lending in the mortgage markets and we need these entities that will be safe; so let me just be clear we’ll make sure that when they’re restructured they’re absolutely safe and they don’t get taken over again but we gotta get them out of government control.”

 

notice mnuchin used the word "restructured".  now when i think a finance guy uses the word restructured, he is talking about a finance fix, a fix to balance sheet, not a fix to the core of the enterprise that would involve reform.  financial restructuring falls far short of reform, in other words.

 

am i reading too much into this distinction? (ie confirmation bias).  frankly, i think it is telling what mnuchin's current mindset is...doesnt mean we can tell with any specificity what he and trump admin will do, but i don't think it was just a meaningless word choice.

Re Mnuchin statement.

In my view, only 3 issues can be derived from his words in the form of a vision.

1) The companies will survive.

2) There will be new owners as part of the restructuring and the government will stop being one.

3) The companies may not look like the old companies or they may.

 

The above 3 circumvent Congress as long as the restructuring can be done administratively. Like earnings cap, portfolio restrictions, etc. However, the risk is that administrative reform may not stick.

 

Nevertheless, the important Q is who the new owners will be and under what terms.

[Guest cherzeca]

well here's a tell: if corker votes for mnuchin we know he is long GSE common

[Mephistopheles]

The most important point we are missing about Trump is how he'll react to the potential value of the warrants if the NWS is reversed. When he finds out it'll be several hundred billion dollars for him to take credit for and spend, it's game over Corker and friends.

[orthopa]

This is how I connect the dots about what Trump will do. Using what seems to be plain common sense based on what happened before, during and after the election.

 

1. Trump (possibly via Mnunchin) owes Paulson after his support, donor money etc.

 

2. Trump has shown extremely loyalty to those who have supported him via positions in the administration etc.

 

3. Paulson isn't going to have a position in the administration so his reciprocation will come in another manner.

 

4. Paulson, Berkowitz, Ichan, all have some sort of a tie to Fannie/Freddy and Trump/Mnuchin and now Icahn is an "adviser"

 

5. Mnuchin said he wants FnF out of government control, fast, and will make it a top 10 priority. He is either blatantly lying or just told us he is going to do exactly what we want him to do. I seems to simple and its what we want....that;s what makes us uneasy.

 

 

Who is Trump going to lean towards/try to please/help out etc? His "hedge fund" buddies or some hard nosed politicians who have no better option then what Paulson/Berkowitz may put in Mnunchins ear.

 

Its a very simpleton approach to connecting the dots....but can be asked in a simple question. Does Trump let Paulson/Berkowitz lose -/+ 1Billion each or help them in a beneficial way? I honestly think a political scenario where Trump is swayed away is much less likely.  Has Trump shit on his supporters?

 

I believe any resolution helps Paulson the most(and indirectly Berkowitz through preferred exposure), not so sure where Ackman will stand at the end with all of the common. I cant use common sense to figure that out.

 

If Im naive and way out in left field with my assessment above then the legal case maybe my only hope.

[waynepolsonAtoZ]

Watt has already said he supports recap (or rather he just says it should be looked at). He hasn't prejudged things, but he's said the right things.

 

http://www.housingwire.com/articles/36314-fhfa-director-watt-this-is-the-most-serious-risk-facing-fannie-mae-and-freddie-mac

[onyx1]

This is how I connect the dots about what Trump will do. Using what seems to be plain common sense based on what happened before, during and after the election.

 

1. Trump (possibly via Mnunchin) owes Paulson after his support, donor money etc.

 

2. Trump has shown extremely loyalty to those who have supported him via positions in the administration etc.

 

3. Paulson isn't going to have a position in the administration so his reciprocation will come in another manner.

 

4. Paulson, Berkowitz, Ichan, all have some sort of a tie to Fannie/Freddy and Trump/Mnuchin and now Icahn is an "adviser"

 

5. Mnuchin said he wants FnF out of government control, fast, and will make it a top 10 priority. He is either blatantly lying or just told us he is going to do exactly what we want him to do. I seems to simple and its what we want....that;s what makes us uneasy.

 

 

Who is Trump going to lean towards/try to please/help out etc? His "hedge fund" buddies or some hard nosed politicians who have no better option then what Paulson/Berkowitz may put in Mnunchins ear.

 

Its a very simpleton approach to connecting the dots....but can be asked in a simple question. Does Trump let Paulson/Berkowitz lose -/+ 1Billion each or help them in a beneficial way? I honestly think a political scenario where Trump is swayed away is much less likely.  Has Trump shit on his supporters?

 

I believe any resolution helps Paulson the most(and indirectly Berkowitz through preferred exposure), not so sure where Ackman will stand at the end with all of the common. I cant use common sense to figure that out.

 

If Im naive and way out in left field with my assessment above then the legal case maybe my only hope.

 

 

Or, Trump simply restores shareholder rights because it's consistent with the rule of law.

[BTShine]

Onyx, you said it better than I could.

 

+1

[Luke 532]

If Im naive and way out in left field with my assessment above then the legal case maybe my only hope.

 

I don't think you're being naive.  I think your assessment is correct.

[waynepolsonAtoZ]

Does someone have easier access to pulling stock price data going back to 2008 for the GSEs? They had different tickers before delisting. It may be pretty easy to pull the data, but I thought I'd access for assistance if possible. I'm traveling the next few days.

 

I'm thinking about doing a simple version of an "event study" re FMCC, FMCKJ, FNMA, FNMAS.

 

So, using FMCKJ as an example:

 

1. Issued at redemption value.

 

2. What happened shortly after Paulson had his famous meeting with the investment banks.

 

3. What happened at September 7-8, 2008.

 

4. What happened upon delisting around the fourth of July 2010.

 

5. August 17, 2012.

 

6. September 30, 2014.

 

GSE investors got pounded by $xx billion around these various dates. GSE invrestors will be restored if Trump or the courts follow through. But its a recovery of value not a windfall profit.

 

I'll have to be more precise about specifying the "critical events" and "critical time periods" once I or someone else has pulled the data.